Hon Hai Group
Terry Gou's Secret Bases
Source：Chien Bin Huang
Big-league industrialist turned would-be movie mogul, Terry Gou has changed. From computers and electronics, he is moving into content, and the sprawling dominion he has established in China is the key to his ascent.
Terry Gou's Secret BasesBy Sheree Chuang and Jimmy Hsiung
From CommonWealth Magazine (vol. 364 )
With a net worth exceeding NT$100 billion since the jump in Hon Hai stock value last year, and with Hon Hai breaking the trillion NT-dollar mark, Terry Gou is now transforming himself into a movie mogul.
From electronics giant to film industry tycoon, is Terry Gou playing for keeps? ""In the ultra-pragmatic world of movies, being well-funded isn't enough-you have to let everyone know you're committed and have what it takes to unite the necessary resources and the right people,"" says a young, up-and-coming Taiwanese director.
According to his observations, Terry Gou has let it be known that he is more than just money; he has the clout to bring talent and resources together. ""The word is out that Gou is not only a source of funding, but of prestige.""
To achieve value-added vertical integration in the film industry, one must rely on friends. An old friend of Gou tells us, that the help of close personal friend Sung Hsueh-jen, vice chairman of Goldman Sachs Asia, Song's wife Stella Chang (a Taiwanese singer/actress), and other film industry bigwigs, has made Gou the industry's most eligible bachelor; in his attempt to join the motion picture industry, the richest man in Taiwan is fast accumulating the necessary connections both onstage and behind the scenes.
Working over 16 hours a day, Gou never misses any film industry event in China, Hong Kong or Taiwan.
A high-level executive close to Gou tells us, that the film industry events Gou attends are ""almost all after the work day, and after-hours!"" He also tells us, that Gou doesn't just attend these functions, but ""before he goes to any function, he will familiarize himself with the guest list and their backgrounds.""
""It seems that this great industrialist is paving the way for his role as major producer after he retires,"" says Kirk Yang, Citigroup's head of Asia tech hardware research, who has been observing Hon Hai for years, and doesn't believe Gou will actually retire in 2008.
Spending Time Where It Counts Most
Having targeted the film industry, a great believer in ""spending time where it counts the most,"" Gou seems to have the film industry in his sights as the next big economic trend.
Observing the rising success of the Indian, Korean, and even the Chinese film industries, Peggy Chiao, head of the Taipei National University of the Arts Graduate School of Filmmaking is worried by Taiwan's lack of comparable momentum. In class, she tells her students that what Taiwan needs most is a capital injection into the production of Taiwanese films.
Gou's stake in the film industry is in the integration of Chinese, Cantonese, and Taiwanese talents and resources. The supervising producer he has hired for his first investment, the film ""Silver Empire,"" is none other than Peggy Chiao, whose family is also originally from Shanxi Province, and who has much experience in international business, as well as the ability to integrate resources in China, Hong Kong and Taiwan.
Gou has always known how to spend his time where he'll get the most advantage, how to capture an opportunity to maximize profit, and how to traverse easily between the political and commercial, timing and influence. ""You can call it snobbish, but it's also practical, and that is where Gou succeeds,"" says one subordinate.
All-pervasive Will Power
The very stringent system for new business investments established by the Hon Hai Group allows Gou to claim victory from afar, sitting comfortably in his luxurious office in Longhua (Hon Hai's China operations headquarters). ""The Group's Legal Affairs Department, New Product Venture Department and Investment Department all watch their business investments very closely, every step of the way,"" says Max Fang, former regional director of Dell Computer's Asia Pacific Supply Chain Management Office and currently chairman of Maxima Capital Management.
Gou's film industry career is currently a personal investment. Industry colleagues who see him with female stars often joke that he's diving into scandal at an old age. ""He's exceeded our expectations,"" says one Hon Hai executive. ""Terry Gou can't do anything from the standpoint of personal desire and enjoyment.""
Having worked for IBM before, the executive says that business success, from connectors and motherboards to mobile phones and TFT displays ""were all undertaken by Gou with strong will power, after much serious thought."" A young Taiwanese sales staff member tells us that Gou is meticulous at everything, always telling sales personnel, "To be a good salesperson, you have to know everything about your client, down to his underpants.""
A Melting Pot for Talent
Gou's eye for talent is key to the establishment of the Hon Hai empire. A mid-level executive at InnoLux Display Corp., under the Hon Hai Group, tells us that when Gou decides to take on an industry, the first thing he does is to scout out the ""top three"" industry professionals.
Aside from a willingness to pay for talent, Gou attracts them through his concepts of ""a dream"" and ""a stage."" Even Hon Hai employees describe the employment trend at Hon Hai as ""a black hole for pass' technological talent,"" where many former electronics industry heavyweights and foreign high-level executives will resurface to take on important positions.
"Those who have completed a cycle in the field, perhaps even having experienced failure," says the mid-level Hon Hai executive, "people at that age need a stage."
And Gou supplies them with capital, equipment, land and facilities, and grant them the authority to do their best.
The first thing Gou did before advancing on the film industry was, of course, to find the top players in the field.
Te position of supervising producer for Gou's current project, ""Silver Empire,"" is filled by Peggy Chiao, who has abundant experience in both Taiwanese and international film circles. The job of director is filled by the wife of InnoLux Display Corporation's general manager, Stanford University Drama Department graduate Dr. Shuhua Yao.
Gou also has an avant-garde blueprint for film investment, and that is to eventually integrate the content business with Hon Hai hardware manufacturing. ""We are currently the world's largest ADSL manufacturer,"" says Gou, in earnest, ""as well as the largest in computers, digital cameras, DVDs, and the Internet.""
Investing in the film industry will allow Gou to go beyond the 3Cs of manufacturing (computers, communications and consumer electronics) to the 4th ""C"" - the content industry.
"There's a lot of room for improvement between transmitting a message to transmitting a film," says Gou; everyone believes that IT is a mature industry, "but it's actually a very young industry," says Gou, jokingly making the following comparison: "Like the difference between the maturity of an 18 year-old girl and a 38 year-old woman."
Gou stresses that technology must be applied to life to deserve the name. "Once the company and the studio are combined,"" says Gou, ""it will be a hi-tech data processing and production base."
Gou's film studio concept is being executed quietly. Mayor Xia Zhengui of Jincheng City tells us that Gou made a personal investment of US$100 million in the Foxconn Studios project, due to break ground this summer.
To the young executives sent to set up office in Taiyuan in 2004, Gou once quipped, "I, the CEO, am from Shanxi, and the future of the world is 3C." (In Chinese, "Shanxi"" and "3C" sound nearly the same.)
Foxconn is currently the largest outside investor in Shanxi Province. Gou, who has been making donations to his hometown since 1989, has not only built two 3C manufacturing bases here, he's now brought his pet content industry project as well as his new resource-related industries to Shanxi.
"We predict that once Gou arrives, many more Taiwanese businesses will follow," says Lanhua Group Chairman Heguiyuan, head of the largest listed corporation in Jincheng City, who made joint investments with Gou in coal chemical and other energy industries last year.
At Acer's 30th anniversary banquet last October 26, Gou spoke to the press: "Because I don't understand what making a movie is all about, I will make three in my quest to understand.""A month later, an excited Gou congratulated the Golden Horse (Taipei film festival) best actor winner Aaron Kwok, and told the press that, "after I retire in 2008, I'll invest in at least 100 films."
But there are also many close friends of Gou who believe he can make a name for himself in the film industry. "He'd set something up from a distance, but never do what is unreachable," says close personal friend and United Microelectronics vice chairman John Hsuan.
"Terry the Talker"
As one old friend of Gou relates, Gou has possessed the tongue of a top salesman since childhood, and early on earned the nickname Guo Gai (equivalent to "Terry the Talker"). Yet "he has always delivered on his inflated claims. If he says it, he can do it."
The industry is rife with tales of the might of "Terry the Talker." For example, empty-handed, he managed to convince Compaq Computers to place a large order for computer casings back in 1995. Max Fang recalls that at that point Hon Hai had never made anything but connectors, and had no experience or equipment for making casings. But Gou dragged Compaq's foreign procurement manager into the middle of an empty lot on his Longhua grounds, drew him Hon Hai's blue prints for the casings, and "Compaq actually ordered from Hon Hai, much to the collective shock of the whole industry," says Fang, still mystified.
Later, Hon Hai subcontracted the Compaq casing order to six separate Taiwanese mold and metal casing manufacturers, while it commenced with building its own casing production line. Within six months, it completed their production line, retracted the subcontracts and manufactured the entire order itself.
When asked about his impression of Gou, "Silver Empire" star Aaron Kwok described his "boss"" as a man who "has a lot of class, is very accommodating and friendly, and really takes his work to heart."
Carrying an empire on pure chutzpah
In business, however, no one would describe Gou as "accommodating and friendly." Employees and industry colleagues alike, even clients, uniformly recognize Gou's ""chutzpah."" This ""chutzpah"" reveals the importance he places on results and strength of implementation, and showcases his unique temperament.
A former high-level Hon Hai executive recalls that Gou not only makes strict demands on his subordinates, but is unsympathetic even to blood relatives.
He tells us that once, when Gou's younger brother Gou Tai-chiang was still general manager of Hon Hai, Gou was hosting an important meeting with an international client along with the managers of the five major departments. When Gou Tai-chiang arrived slightly late, he went to sit down next to his brother Terry, who then said: ""hat are you doing, sitting here?" Gou Tai-chiang then asked, "Where else would I sit?" And Gou answered, ""Go sit in that seat in the back, because your department is doing the worst!"
If Gou is unrelenting when he berates his own brother, his demands on his other executives are exacting indeed. ""hen they make a mistake, the highest-level executives are told to go stand in the corner," says a high-level executive who's worked alongside Gou for over 20 years. ""But perhaps it is Terry's dictatorial attitude that's allowed him to build as huge an empire as Hon Hai."
Iron Emperor, Liquid Generals
The Hon Hai empire was built on an emperor that stands as firm as iron, and his generals who flow away like water.
Gou's strong temperament has lost Hon Hai much talented personnel. A former Hon Hai sales manager recalls Gou's reaction when he saw too many sales personnel sitting around the office: "I see the hunting dogs are no longer going out to hunt. You're all just sitting at the door."" Then he gave instructions: "I want all of you to find two companies to contact next week. Go."
As another former Hon Hai executive recalls, while Gou is always diligent in his search for talent, ""if he disapproves of you after three months, he shows his temper.""
Even those who are hired with large paychecks have to pass the three-month trial, which is Gou's observation and forbearance period. Gou's astringency is a constant after-dinner topic in Taipei's technology industry.
"The better you do, the more difficult he is to please!" says a former high-level executive who left Hon Hai due to a self-professed inability to stand Gou's totalitarian leadership style.
The Perfect System
While the Hon Hai empire has been built by many ""liquid generals,"" the business group seems impervious to personnel rotations, because they have long since established a perfect system for transmitting experience.
A former Hon Hai high-level executive reveals that Gou asked the founding executives to expend great energy towards creating such a system back in 1993.
This former executive gives the example of the bronze statues frequently placed in front of Chinese medicine stores (featuring graphic displays of all the major nerves, vessels, and veins in the human body): "Muscle, sinew, and blood vessels are all connected, without breaks." He recalls brainstorming how such a system can be controlled by a central nervous system, even possessing automatic reflexes when confronted with a problem. "These systems were the result of two to three years of hard work, created by manager-lead teams who contemplated the issue daily after work."
At the time, there was no such thing as computerizing business operations, and Hon Hai had to depend on raw manpower to write and create the complex descriptions and SOP for the Group's four major management systems. "We linked these systems together, and once they were working smoothly, everyone worked according to the system. There would never be the case of each succeeding generation of instructions being different from another," says this former executive.
Despite Gou's totalitarian management style creating a high turnover rate in high-level executives, his determination and foresight gave Hon Hai a solid foundation early on, keeping the conglomerate well ahead of the pack in establishing complex industrial operation flow-chart systems.
A strong leader makes for perfect enforcement, but aside from winning people over by a show of strength or by profit, Gou is quite exceptionally capable himself; his ability for forward pricing is a source of both love and hatred for his industry colleagues. Fang explains, ""Gou is always certain that next year's budget will be much lower than the current year's, so he is always estimating prices according to the next year's costs.""
Fang observes that this is the key to Hon Hai's ability to defeat international EMS businesses such as Flextronics and Seminor-SCI.
Using China to Conquer the World
Of course, using China is definitely the key to Gou's ascendancy as the leading international EMS company with low overhead.
While Flextronics entered China in 1987, a year earlier than Hon Hai, the following decade showed that Flextronics' investment distribution is still limited to within Doumen Industrial Park in Guangdong.
Gou, on the other hand, has been focused on Hon Hai's deployment in China since entering Shenzhen in 1988. At the moment, Hon Hai has left all of its competition behind with its 17 large production bases in China.
Gou's strategy for deployment in China has given Hon Hai the distinction of being China's top generator of foreign reserves year-after-year, and given Gou unrivaled clout as a political merchant. When Gou took his private jet back to Shanxi in 2006, a rumor was circulated locally that Minister of Commerce Bo Xilai, another Shanxi native, met him personally at the airport.
A workaholic, Gou's demands for employees in recent years have shifted considerably, following the death of his father and his wife, and brother Gou Tai-cheng's battle with cancer. A mid-level Hon Hai executive reveals, "The chairman is now always telling colleagues to take more vacation and to visit Taiwan."
"He really is tired," says his cousin Gou Hsiao-ping. "Especially since Tai-cheng fell ill, Terry has been running off to Beijing at every chance," visiting his brother who is receiving bone marrow transplants. Gou Hsiao-ping feels that family has been extremely important to Terry Gou these past few years.
In the last few years, which he has spent taking care of his brother, Gou has come to treat Shanxi like a second home, and the stories he heard about Shanxi's legendary merchants ignited his passion for the film industry, which has become the thing he wants most to do should he really retire.
"When in Shanxi, Gou often says that his first few years of hard work were for money, the next few for idealism, and now, for personal interest," says Jinzhong mayor Li Yong Hong; "Gou's latest interest lies in the cultural industry."
Gou has, of course, encountered more than a few tough problems going from manufacturing to content. This Genghis Khan of industry expansion must now face the challenge of a transfer of power from rule-of-man to rule-of-law, to keep the empire running.
Translated from the Chinese by Ellen Wieman